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Coastal Bucks Trend Again with Higher Earnings

Coastal Bucks Trend Again with Higher Earnings

The Coastal Corp benefited from its mix of producer and pipeline operations, announcing a 17% jump from 3Q 1997 on a per-share basis. Coastal earned $89.5 million, or 41 cents/share, compared to $80.4 million, or 35 cents/share in 3Q 1997. Along with earnings, the company reiterated its commitment to the North American gas sector, calling it the best energy investment opportunity anywhere.

"Coastal's natural gas production for the third quarter was up 20% over last year's quarter, despite turbulent weather which severely restricted production and drilling operations in the Gulf of Mexico," said David A. Arledge, CEO. "Contrary to recent industry trends influenced primarily by depressed oil prices, Coastal announced a $100 million increase in its exploration and production budget for 1998. We intend to capitalize on decreased costs of services and equipment to further boost our natural gas production, as we believe the North American natural gas sector offers the best investment opportunity of any energy market in the world."

A Coastal spokeswoman said the company can now hire rigs and equipment for $20,000 per day that would have cost $75,000 per day in the first quarter. "We're seeing somewhat of a recovery in prices although we anticipate oil prices won't rise that much. Natural gas prices probably will," said spokeswoman Vicki Guennewig.

"Coastal is structured financially to benefit from the very environment -- a worldwide economic slowdown with reduced energy demand -- that causes lower energy prices," Arledge said. "Lower oil prices, for example, require less borrowing for working capital, while lower interest rates further reduce financing costs. In addition, sharply constrained industry spending in a low-price environment creates tremendous investment opportunities for companies with financial flexibility."

However, Coastal's exploration and production segment earned before interest and taxes $15.9 million in the third quarter, less than half the $33.1 million EBIT in 3Q 1997. Despite increased gas production, significantly lower gas and oil prices hit the company hard. Realized prices for gas in the third quarter were $1.85/Mcf, compared to $2.09/Mcf in 3Q 1997. Third quarter gas production was 504.2 MMcf/d, up from 421.3 MMcf/d despite storms and hurricanes in the Gulf of Mexico.

Coastal's 3Q EBIT for the natural gas segment was nearly flat at $109.1 million, compared to $110.8 million in 3Q 1997. Marketing earnings declined due to a slight loss in Engage Energy - Coastal's marketing joint venture with Westcoast Energy, which is currently being restructured - and ongoing weakness in liquids prices, according to analysis by PaineWebber's natural gas group.

In reporting a Q3 net loss of $6 million, or 6 cents/share, compared with a gain of $17 million, or 17 cents/share in Q3 1997, Westcoast noted "operating results continue to be negatively affected by losses from the company's 50% interest in Engage Energy. The decrease reflects a loss incurred by Engage Energy relating to the default of two customers in conjunction with electricity trading transactions in the second quarter of 1998, amounting to approximately $14 million, combined with operating losses incurred in the energy marketing business."

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